American Express Company, together with its subsidiaries, operates as integrated payments company in the United States and Internationally. It operates through four segments: U.S. Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services.
American Express (AXP) shares dropped as much as 3.15% on Friday, marking their steepest intraday decline since early August. The drop followed the company’s announcement of a lowered full-year revenue growth forecast, now expecting an increase of around 9%, down from the previous 9-11%. This new forecast also missed analyst estimates, which had expected a more optimistic outlook. Investors have expressed concern, especially given AXP’s recent strong performance. Despite the trimmed forecast, American Express reported solid third-quarter results, with revenue hitting $16.6 billion, a new company record, though slightly below market expectations of $16.67 billion.
The company’s adjusted earnings per share (EPS) came in at $3.49, surpassing the market estimate of $3.29, and up from $3.30 in the same period last year. Alongside this, AXP raised its full-year EPS guidance to between $13.75 and $14.05, an improvement on the prior range of $13.30 to $13.80. CEO Steve Squeri remained confident on the earnings call, pointing to the company’s balanced revenue drivers: spending, net interest income (NII), and card fees. Notably, card fees grew 18% year-on-year, marking the 25th consecutive quarter of double-digit growth.
However, Squeri acknowledged that achieving AXP’s long-term goal of 10% revenue growth will depend heavily on economic improvements and stronger billings. While AXP’s high-end customer base continues to perform well, the company faces challenges in the current uncertain economic environment. Provisions for credit losses rose to $1.4 billion, slightly higher than expected, reflecting rising defaults. Total expenses also increased by 9% to $12.1 billion, driven in part by a 19% increase in marketing expenses compared to the same quarter last year.
Despite these challenges, American Express continues to outperform its peers in terms of credit quality, supporting EPS growth. Its high-spending customer base, particularly from affluent segments, has driven both higher card fees and lower credit losses compared to competitors. Additionally, strong growth in international business has helped offset the slower consumer spending in the U.S., though concerns remain over the sustainability of such growth.
Analysts remain cautious about the company’s ability to reach 10% topline growth in the near term, noting that macroeconomic conditions and a slowdown in billed business may hinder progress. While American Express benefits from its fee-based revenue model, the company’s dependence on marketing to sustain growth, particularly in a slowing spending environment, could limit future earnings potential.
American Express continues to deliver strong earnings and raised its annual EPS guidance. However, the missed revenue guidance, combined with a reliance on fee income and marketing, raises concerns about the company’s ability to meet its long-term growth targets. As a reminder, AXP’s inclusion in the US Growth portfolio is based on fundamental criteria such as profitability and valuation. At this stage, there is a reasonable probability of AXP being removed when the portfolio is next rebalanced on November 1st.
